Public Bill Committee

[Mr. Jim Hood in the Chair]

Clause 179

Inspection

Question proposed [this day], That the clause stand part of the Bill.

Question again proposed.

Stewart Hosie: As I was saying before lunch, the clause is similar in form to a clause we considered on another Bill. That clause gave Her Majestys Revenue and Customs officials the right to access and seize documents. I argued that if a document was an electronic document hosted on an overseas computer, it would be wholly unreasonable to expect that the person being asked to provide it could necessarily do so. Such legislation, because it could be seen as extraterritorial, might be unenforceable. The same argument applies in this case.
The clause states that the Bank of England may appoint someone to inspect an inter-bank payment system and that the operator of that system must
grant an inspector access, on request and at any reasonable time, to premises on or from which any part of the system is operated.
Clearly, if the data centre is overseas, that might be impossible and legally unenforceable. However, although the extraterritorial argument is a real one that needs to be addressed, the issue of the operator is more important in terms of the Bill. The operator may be a fairly junior member of staff in a bank, certainly not a senior figure, who may not have access or be able to arrange it.
If an overseas data centre forms part of the system that is to be inspected, it would make more sense for the legislation to suggest that failure would be only if all reasonable efforts to gain access or to allow the inspector access were not made, rather than the pretty blunt description in the clause that the operator of a recognised inter-bank payment system must grant an inspector access even when the centre may be overseas or he or she simply cannot organise that access. I should like to hear what the Minister has to say about that. I would not like to see a piece of legislation that could land someone in court, or subject them to an inspection warrant, for something that they physically cannot do, or do not have the status to do. Would not the phrase make all reasonable efforts be better than the wording in the clause? I will listen to what the Minister has to say before we look at other amendments to this part of the Bill.

Ian Pearson: Clause 179, as Members have outlined, gives the Bank of England the power to appoint inspectors whose role is to inspect the operation of a recognised inter-bank system. It is relatively straightforward and is the first of a number of clauses in the enforcement section of part 5. It places the operator of the system under a statutory obligation to grant the inspector access to the premises from which all or part of the system is operated or managed and to co-operate with the inspector.
The power allows the Bank of England to appoint an inspector to check that codes of practice, principles, system rules or directions are being complied with and that the recognised inter-bank payment system is otherwise operating in a satisfactory manner. The power is an important tool of oversight that strengthens the Banks ability to ensure that payment systems identified as of systemic or system-wide importance are being operated in a manner that does not pose a threat to business or other interests, or to financial stability in the United Kingdom as a whole.
The hon. Member for South-West Hertfordshire asked whether the power would be routinely used. I am happy to confirm that we do not anticipate that it will be routinely used. We expect that if the Bank of England had any concerns about the operation of an inter-bank system it would discuss them in the first instance with the operator concerned. In most, if not all cases, I imagine that things would be sorted out. However, given the importance of oversight of those critical systems, I think it right that there are powers for inspection, so the later powers that we shall discuss are in reserve.

Colin Breed: Would that be similar to the non-routine use of the Anti-terrorism, Crime and Security Act 2001 for the inspection of Landsbanki, for instance?

Ian Pearson: I will not be tempted to speculate or to respond to that comment; I discussed the issue at some length yesterday in the statutory instrument Committee dealing with Landsbanki.
The hon. Member for Dundee, East made a number of interesting points relating to the fact that some bank systems are outsourced. I recognise that, and it will have to be taken into account by the Bank of England as part of its supervisory role. The Bank will want to ensure that it has confidence that the systemic and system-wide recognised inter-banking systems are being operated in an appropriate manner. I cannot prejudge all the circumstances in which an inter-bank system might operate and I do not think that it would be right to put them in the Bill; that is not the purpose of primary legislation. However, the hon. Gentleman makes a valid point that will have to be considered as part of how the Bank views its oversight arrangements.

Peter Viggers: I last came across the exercise of powers such as this last week in parallel circumstances, when I found myself answering questions on behalf of the Speakers Committee on the Electoral Commission about the powers of the Electoral Commission to investigate premises and to call for papers. I am thus looking with some interest at clause 179 and wondering whether the Minister can tell me what the previous powers were in this field. No doubt there were powers for the Bank of England to carry out investigations, and the provision may be a repetition or a strengthening of powers that previously existed. I would be interested to know whether there were such powers.
Secondly, I wonder if the operator of a recognised inter-bank payment system knows that he is an operator of a recognised inter-bank payment system. What process is there for ensuring that when the inspector authorised by the Bank of England arrives to inspect the premises, the operator realises that he must give the inspector access?
My third point is about the phrase
otherwise co-operate with an inspector,
which seems very broad and seems to mean that the operator must do everything that the inspector requires him to do. However, one would like rather more clarification of exactly what it is that the inspector can require the operator to do. To say that they must otherwise co-operate with the inspector is really very broad and might leave the operator, who might not be briefed in banking law, at a loss as to what exactly they are required to do. I would be grateful for some clarification of what appears, on the face of it, to be a very general clause.

Ian Pearson: The hon. Gentleman raises three points. The first is the question of whether the operator understands that he is operating a recognised system. As we explained when considering some of the earlier clauses, there is a process whereby the Treasury will establish that a system is a recognised system because it is of either systemic or system-wide importance. In the consultation exercise, we gave examples of those systems and it would be readily apparent to those who work in such areas that they are operating a systemic or system-wide inter-bank system.
The second issue that the hon. Gentleman raised related to the fact that the Bank of England already has a number of investigatory powers. The Bank has not previously had statutory responsibilities for the oversight of inter-bank systems. Under the clause, we are talking specifically about inter-bank systems and giving the power of inspection, if it is required, to the Bank.
The third point that the hon. Gentleman made was about the words
otherwise co-operate with an inspector.
I understand that the power is relatively broad. It will be used in a reasonable way by the Bank of England, just as we expect all our public institutions to operate in a reasonable manner. I do not think it unreasonable to put the power in the Bill.

Question put and agreed to.

Clause 179 ordered to stand part of the Bill.

Clause 180

Inspection: warrant

David Gauke: I beg to move amendment No. 39, in clause 180, page 90, line 34, at end insert acting reasonably.

Jimmy Hood: With this it will be convenient to discuss the following amendments: No. 40, in clause 181, page 91, line 4, after it, insert reasonably.
No. 41, in clause 180, page 91, line 9, after assist, insert substantially.
No. 42, in clause 185, page 91, line 33, after England, insert reasonably.
No. 43, in clause 185, page 91, line 33, leave out think and insert thinks.
No. 44, in clause 190, page 93, line 31, after Bank, insert reasonably.
No. 45, in clause 190, page 93, line 33, after otherwise, insert reasonably.

David Gauke: The clause deals with the circumstances in which Bank of England inspectors may apply for a warrant entitling them to enter the premises of an operator of a payment system and in which justices of the peace may issue one. A number of conditions are set out and if any one of them is fulfilled, an inspector will be permitted to seek to obtain a warrant for entry. The amendment relates to condition 4, which states that
a person occupying or managing the premises has failed to co-operate with an inspector.
To understand the thinking behind the amendment, it is worth looking at the other conditions. It must be remembered that it is necessary to satisfy only one of them. Conditions 1 and 2 relate to the information-gathering process set out in clause 190. Condition 3 relates to refusing to give an inspector access to premises, despite reasonable notice having been given. If an operator has not failed to provide information or access, a warrant can none the less be issued on the basis that the person occupying or managing the premises failed to co-operate with an inspector.
The point of the amendment is that only an inspector who is acting reasonably should be able to obtain a warrant. The other conditions are set at the appropriate level, but condition 4 simply allows an inspector to make requests of the occupier of premises that are part of a payment system. If he refuses to co-operate in any way, he makes himself vulnerable to a warrant from a justice of the peace. I would be grateful for the Ministers views on that point.
If I may talk generally on the clause, it would preclude the need, from my point of view, for a stand part debate. I shall raise the usual points and I am sure that the Minister will be obliging in responding to them. Will he give an assurance that the procedure in the clause will be used only in exceptional circumstances? Does he anticipate the Bank of England looking to obtain warrants to enter premises as a routine matter? Given his comments on clause 179, I am sure that he will have no problem in giving that assurance.
Amendments Nos. 40 and 41 relate to clause 181, which sets out that the Bank of England may require the operator of an inter-bank payment system to appoint an expert to report on the operation of the system. Amendment No. 40 would insert the word reasonably so that the Bank may impose a requirement only if it reasonably thinks that the operator is not taking sufficient account of the published principles or the code of practice. Amendment No. 41 would insert the word substantially in subsection (2)(c) so that the Bank may impose a requirement only if it reasonably thinks that the report is likely for any other reason substantially to assist the Bank in the performance of its functions under this part. Both amendments attempt to be slightly more specific, because a report might be of only marginal benefit to the Bank yet cause substantial inconvenience and costs for the payment system, so it should not be issued lightly.
Amendment No. 42 relates to clause 185, which sets out the Bank of Englands powers to close a payment system, which is clearly a draconian sanction. The amendment proposes that those powers may be applied only if the Bank reasonably thinks that the compliance failure threatens the stability of the UK financial system. It is a probing amendment, so I would be grateful for the Ministers thoughts on it.
Amendment No. 43 also relates to clause 185 but is less of a probing amendment. Although it would not be fair to claim that it goes to the heart of the Bill, I feel quite bullish about it. The current drafting states:
This section applies if the Bank of England think that a compliance failure threatens the stability of the UK financial system.
The amendment would instead state that the Bank of England thinks that the compliance failure threatens the stability of the UK financial system. Elsewhere, the Bill states that the Bank thinks, so I hope that the Minister will accept the amendment.
Amendments Nos. 44 and 45 relate to clause 190, which provides that the Bank of England may request information from an operator of a payment system. Again, I propose that that should occur when the Bank reasonably thinks that it will help the Treasury in determining whether to make a recognition order and when it reasonably requires the information in connection with its functions under Part 5. I am sure that the Minister will say that the Bank of England will act reasonably in all circumstances, but I suggest that we should include the provision in the Bill.

Peter Viggers: I am of course aware that the explanatory notes do not form part of the Bill and have not been endorsed by Parliament, but one nevertheless looks to them for an explanation. In relation to clause 180 they state:
The application is to a justice of the peace, who can issue the warrant only if certain conditions are fulfilled.
The fact that conditions is plural could lead one to think that all the conditions need to be fulfilled, but my reading of clause 180(1)(b) is that the warrant can be issued if
any of the following conditions is satisfied.
I take it from my reading of the Bill that any of the conditions laid out is sufficient to enable a warrant to be issued. The Minister is indicating assent.
With regard to the amendment moved by my hon. Friend the Member for South-West Hertfordshire, I do not think that anyone disagrees that inspectors act reasonably. That rather flows back to my point that the words
otherwise co-operate with an inspector
in clause 179 are really quite broad. One would like to think that the mandate imposed on the inspector is that he should act reasonably, so for what it is worth, I lend my support to my hon. Friends amendment.

Ian Pearson: I congratulate the eagle-eyed hon. Member for South-West Hertfordshire on amendment No. 43, which changes think to thinks. It was a typographical error and he spotted it. Either it will be corrected, or I will happily accept the amendment. However, apart from that example, the Governments view is that the amendments are unnecessary and inappropriate.
Amendment No. 39 would amend clause 180. When determining whether to
issue a warrant entitling an inspector or a constable to enter premises,
a justice of the peace must look at a range of issues to see whether any of the conditions are met in order to issue such a warrant. I am happy to confirm to the hon. Member for Gosport that his interpretation is right; it is any one or more of the following conditions. The justice of the peace will look at whether the requirements on the operator of the payment system, including the requirement to co-operate with an inspector, have been met. If they have not been met, the JP will ask why, but even if the JP considers an inspector to have acted unreasonably, or that it was reasonable in the circumstances for the operator of the payment system not to comply, a warrant will not be issued unless one of the other conditions has been met. There is, therefore, no need to amend the subsection in the manner suggested.
Amendments Nos. 40, 42 and 44 relate to different clauses in the Bill and in essence have the same purpose. As hon. Members are aware, the Bank of England is adept at balancing public and private interests. As a public body, it is expected that it will act reasonably when undertaking its functions under this part of the Bill. It would be inconsistent with existing legislation to include the word reasonably in relation to the conduct of a public authority. For those reasons, the proposed amendments are inappropriate.
The Bank of Englands actions might be subject to judicial review, which could provide a remedy if the Banks conduct was found to be unreasonable, unfair or disproportionate. That is the normal way in which legislation is passed in this House and the other House. The word reasonably is not used in relation to public authorities, because it is expected that public authorities will act reasonably.
Amendment No. 41 would mean that the Bank of England can require a report only if it substantially assists the Bank in carrying out its functions. However, it might require a report in order to acquire further information, should it feel that an operator of a recognised inter-bank payment system is failing to meet its requirements. It may, therefore, be impossible to say at the outset that such a report would substantially assist the Bank of England. The report might be of only partial assistance, and would need to be combined with other information to provide a full and accurate picture of the systems operation. We feel that the amendment would unnecessarily restrict the Bank of Englands ability to require the production of such a report. I therefore ask the hon. Gentleman to withdraw the amendment, although if he wishes to press amendment No. 43a typographical errorI shall be happy to accept it.

David Gauke: I express my gratitude to the Minister with regard to amendment No. 43. He has demonstrated that Ministers can be reasonable, and it would be unreasonable to object to that. When we reach clause 185, I shall press the amendment.
As for the other amendments in the group, I am pleased to learn that it is assumed that public authorities act reasonably, although we can probably all think of circumstances in which that does not apply. However, given that the Minister has assured the Committee that the provisions reflect the manner in which statutes tend to be drafted, I am prepared not to press the point today. I am slightly alarmed by his comments about substantially, as he may be leaving open the opportunity for the Bank of England to go on what can only be described as fishing expeditions for further information. I am not sure that the drafting of clause 181 really provides protection for operators of banking systems in such circumstances, given that an independent report could be quite expensive and other factors need to be borne in mind, such as the management time that it could impose.
If the Minister can provide an assurance that independent reports will be used only in exceptional circumstances and that he does not regard them as a matter of routine, it could prevent the need for a stand part debate on clause 181. I would be happier if the Bank of England does not use independent reports under clause 181 for the purpose of fishing expeditions but, in the circumstances, I do not intend to press amendment No. 41.

Ian Pearson: It may help the Committee if I say that we do not see clause 180 and clause 181 on the independent report as being routinely exercised. If they were required, it would be for exceptional and unusual matters. I repeat that we expect the Bank, as a public authority, to act reasonably in making requests in such areas.

David Gauke: I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Jimmy Hood: Will the Minister help the Chair? Do I take it from his response to amendment No. 43 that it was accepted as it drew attention to a typographical error?

Ian Pearson: I am happy to accept amendment No. 43, which I assume that we shall vote on when we reach clause 185.

Question proposed, That the clause stand part of the Bill.

Stewart Hosie: Subsection (1) states that a
justice of the peace may on the application of an inspector issue a warrant entitling an inspector or a constable to enter premises.
Will the Minister confirm that he really means that that would cover a justice of the peace issuing a search warrant in Scotland, which is a different jurisdiction from England, or does he mean a sheriff in such circumstances? If so, would the legislation under which that applied be the warrants procedure under the Police and Criminal Evidence Act 1984 or would it be the equivalent Scottish legislation? In any event, does that legislation allow only for a search warrant to be issued by a justice of the peace in England? Will the hon. Gentleman explain why the normal wording that ensures what legislation evidence is treated under is not included under this part of the Bill? Usually, when legislation outlines how a search warrant is issued, it specifies at the same place in the legislation under what legislation the evidence would be collected and treated, whether it is PACE in England or separate Scotland legislation. Will he confirm that the Government mean that a justice of the peace will issue a search warrant when that is necessary in Scotland, or should it be a sheriff, and will he say under what legislation the evidence or productions in Scotland will be treated, and how that system will work?

Ian Pearson: The hon. Gentleman makes a fair point. I do not have the answer, and I do not believe that anyone else in the room does either. I refer him to clause 180(7), which mentions the Police and Criminal Evidence Act 1984, but, as that does not clearly answer his question, I shall write to him about the situation. An amendment may be required to clarify matters.

Question put and agreed to.

Clause 180 ordered to stand part of the Bill.

Clauses 181 and 182 ordered to stand part of the Bill.

Clause 183

Publication

Question proposed, That the clause stand part of the Bill.

David Gauke: We were getting carried away, were we not, with the speed of progress? I wish to ask the Minister a couple of questions.
We again have the words, may publish. I can see an argument for some discretion for the Bank of England as to whether it publishes details of compliance failure, particularly in respect of minor circumstances, but I wish to flag up a point about major failures.
The Minister may be able to provide some reassurance to the Committee as to the steps that will be taken by the Bank of England and, indeed, the Treasury, if a major compliance failure is identified within a payment system but the information has not necessarily reached the public domain. If some type of failure is identified by the Bank of England, it may cause publication, which may cause some damage to confidence in that payments system. I would be grateful to know whether the Minister has given any thought as to how such issues will be dealt with, because we do not want regulatory authorities to be unprepared when publication of some breach of the code of practice or principles is revealed to the public and there is a sudden decrease in confidence in a particular payment system.

Peter Viggers: I am concerned about a lack of specificity in clauses 181 to 183. Clause 183 states:
The Bank of England may publish details of a compliance failure by the operator of a recognised inter-bank payment system.
How will it get those details? I assume that it would get them under clause 181, as it
may require the operator of a recognised inter-bank payment system to appoint an expert to report on the operation of the system.
If I were starting from scratch, I would prefer to say in clause 181 that the Bank may appoint an expert at the cost of the operator.

Jimmy Hood: Order. I have a suspicion that the hon. Gentleman is speaking to clause 181, which has already been decided by stand part. It is okay for him to refer to it but not to go into any great detail. He is speaking to clause 183 stand part.

Peter Viggers: Indeed, Mr. Hood, but clause 183, which I have just read, gives the Bank power to publish details of a compliance failure. How is the Bank to get the information which, under clause 183, it will require to carry out those powers? I should have thought that the Bank would prefer, in preparation for the exercise of powers under clause 183, to have its own independent inspection. We have seen that under clause 181I shall not refer to it again, Mr. Hoodthe Bank does not itself have power to authorise an inspection. Instead, it has power only to
require the operator...to appoint an expert.
When he discusses clause 183, will the Minister explain how the Bank will pull together all the information it needs to enable it to publish details of a compliance failure? It does not have under its thumb or control the inspector who carries out the inspection into the bank under inquiry. I therefore would have thought that clause 183 would be much more powerful if preceding it there was a description of the detailed manner in which the Bank will pull together all the information it needs. How can the Bank produce details of a compliance failure if it has not had someone working specifically to produce the details for it? I hope that the Minister understands the point that I am making. It is a matter of concern that the Bank will not readily be able to exercise the powers in clause 183 without the all the background information that it needs to be clear and specific.

Peter Bone: I assume that the word may in clause 183 is genuine and that it gives discretion to the Bank. That goes to the heart of one of the problems with the Bill and the banking system. A serious compliance failure by one of the major banks that is published could cause a run against that bank. Not to disclose such a failure might, in the long run, be better, but if the bank got into serious trouble, the Government would be in a great deal of trouble because the bank did not publish details of the failure earlier. Do the Government think that such things should be disclosed, or should they be kept quiet to stop the damage being done to the relevant bank?

Ian Pearson: Clause 182 establishes the meaning of the term compliance failure, and clauses 183 to 185 set out sanctions that may be imposed if an operator of a recognised inter-bank payment system commits a compliance failure.
The first sanction is set out in clause 183, which provides that the Bank of England may publish details of a compliance failure. In effect, it is a power of public censure. The disclosure of an operators failure to observe or abide by requirements that seek to ensure the UKs financial stability is intended to act as a deterrent against non-compliance. There are other sanctions, which we will move on to discuss, in case of more serious failures, but we think it right, in the exceptional circumstances that I am happy to confirm we are talking about, that the Bank has a range of measures at its disposal.
The hon. Member for Gosport asked how the Bank might have the powers of information to be able to come to its conclusions. Compliance failure is defined in clause 182 as a failure to observe a requirement under clauses 175, 176, 177 and 181respectively, the codes of practice, system rules, directions and the independent report. Other sanctions, as I said, are set out in clauses 184 and 185. When it comes to looking at compliance with the code of practice and the system rules, the Bank will routinely gather a lot of information, given its oversight role.
In addition, clause 190(1) gives the Bank power that it
may by notice in writing require a person to provide information,
so there are a range of mechanisms to ensure that the Bank has the information that it requires to make the judgments that it wants to make. I should stress that the publication of a report is simply one way in which the Bank can act following a compliance failure, which is why, in response to the hon. Member for Wellingborough, the word should be may. It may be better, if there was a serious breach of systems, not to publish a report but to go for other remedies that we will discuss later. That would be a judgment for the bank to make when considering the circumstances of the case.

Question put and agreed to.

Clause 183 ordered to stand part of the Bill.

Clause 184

Penalty

Question proposed, That the clause stand part of the Bill.

David Gauke: Will the Minister confirm that there is no limit on the level of fine that may be imposed as a penalty in accordance with the clause?

Stewart Hosie: May we have some comfort from the Minister about whether the penalty that may be levied for a compliance failure can be variable and could be zero? Failures in respect of the code of practice and the system rules, a failure to provide a direction, or a failure to report, can mean anything between being late in issuing a report, as specified in clause 181, and a serious breach of the guidelines or rules, as in previous clauses.
In terms of the limit on the fine, clause 187 says that before a sanction is imposed, a warning is to be issued, and so on. Clause 186, which deals with management disqualification, states:
A person guilty of an offence is liable...to a fine not exceeding the statutory maximum.
These things apply in specific circumstances. Clause 184 uses the words, pay a penalty, as opposed to imposing a sanction. Can the Minister provide some clarity on the nature of the penalties and say whether they are the same as a sanction? Will he clarify whether the penalty or the sanction might be small in the case of a minor breach but larger in the case of a significant systemic failure breach?

John Pugh: I have a concern, brought about by the comments of other hon. Members, about the excessive use of may in the context of other verbs. An initial reading of clauses 183 and 184 might lead one to assume that the Bank of England will not act, will not publish and will not inflict a penalty for a minor offence that does not really require and necessitate such action. The hon. Member for Wellingborough said that there might be various reasons for that; it might not happen owing to information being highly commercially sensitive and because the payments agency and the Bank of England, and its chief executives, have had a really good lunch somewherewe simply do not know. However, it is a quasi-judicial system. Some people whose details are published and who have penalties inflicted on them will, presumably, be commercially damaged.
I am wonderingthis is a serious anxietyhow one resolves concerns about equity, if, for example, the Bank of England uses its discretion in one way, in favour of one organisation, and in another way, possibly for good reasons, against another organisation. Should the organisation that is commercially damaged or embarrassed, or whatever, feel itself to have any kind of grievance, what precisely may they do about it? I cannot see an appeal mechanism here, nor can I see a mechanism whereby the reasons that the Bank may have for acting in one case and not in another will be made explicit to such organisations. I am worried that rumour may spread to the effect that decisions are made on a partial and less than equitable basis. Obviously, if the system is to work well it has to embody equity.

Peter Viggers: I concur with colleagues who feel that we need rather more detail in the clause. It mentions a penalty. Are we talking about a fine or could there be a penalty other than a financial fine? We need to know the basis of the assessment.
We Members of Parliament spend a lot of time talking about penalties in criminal and civil cases. I had to discover from a constituency case that, for example, Customs and Excise operates way outside any statutory scale and it is open to it to impose such a penalty for offences as it thinks fit. There needs to be some sort of calibration of the penalty that can be imposed.
Moving ahead to the appeal procedure under clause 188, which we are not discussing at the moment, I see that there can be an appeal against a warning notice of a requirement to pay a penalty. That wording sounds a little cumbersome to me, but at this point I simply refer to clause 184 and ask for a degree of clarity on the amount of final penalty that the Government have in mind.

Ian Pearson: It is right that hon. Members ask questions about clause 184 and what we have in mind for the penalty. It might be helpful if I explain that the power to impose a financial penalty is intended to act as a further deterrent against the non-compliance of operators of recognised payment systems with their obligations under this part of Bill. It reinforces the need to comply with, for example, the provision of codes of practice or directions, which is intended to ensure that systems are not being operated in a manner that could represent a threat to financial stability, and to ensure the overall robustness of the payment systems. We have no reason to believe that operators will not want to co-operate and operate fully, but it is right that we legislate to have an enforcement regime in place.
The hon. Member for Southport suggested that there was no appeal system, but he clearly has not appreciated what we have proposed in clause 188, or the warning system set out in clause 187. Clause 184(1) gives the bank the bank the power to impose a penalty in the event of a compliance failure, and subsection (2) makes it clear that the penalty is payable to the Bank of England and is enforceable as a debt. The term sanction is defined in clause 187(2) and includes penalties or other sanctions contained in this part.
A number of hon. Members rightly asked how much the penalty will be. To answer the hon. Members for South-West Hertfordshire and for the Dundee, East in particular, it is intended that the Bank will impose financial penalties in proportion to the seriousness of the compliance failure and the system operators ability to pay. There is no statutory limit, but as the hon. Member for Dundee, East rightly pointed out, compliance failure could occur in a wide variety of circumstances, and it would not be sensible to try to envisage all those circumstances and include them in the Bill. However, I am happy to confirm in Committee that it is our intention that if the Bank was in a situation where it wanted to impose financial penalties, it would do so in a proportionate way, depending on the circumstances.

Question put and agreed to.

Clause 184 ordered to stand part of the Bill.

Clause 185

Closure

Amendment made: No. 43, in clause 185, page 91, line 33, leave out think and insert thinks.[Mr. Gauke.]

Question proposed, That the clause, as amended, stand part of the Bill.

David Gauke: Buoyed up by that triumph, I would like to ask the Minister a question on a point of clarification. The sanction of closure of a payment system is clearly a serious one. I am sure that he will confirm that it will be used in exceptional circumstances only, but I draw the Committees attention to the fact that clause 185 applies where
a compliance failure threatens the stability of the UK financial system.
Returning to the debate we had this morning on clause 171 and the dual criteria for assessing whether a payment system should be recognised or not, those criteria are:
(a) to threaten the stability of, or confidence in, the UK financial system, or
(b) to have serious consequences for business or other interests throughout the United Kingdom.
I quoted the Bank of England in putting the argument to the Minister that it is essentially the wholesale payment systems that can be described as systemic. The more retail-based payment systems cannot be described as systemic, but could none the less have serious consequences for businesses. The Minister did not accept that distinction. Would he say, however, that the clause is more likely to apply to big payment systems, which deal with large amounts of money? If so, significant and disruptive failures in payment systems that are not of such a scale would not be systemic and therefore would not be liable to closure under the clause. I hope that I have made my point clear.

Peter Bone: I understand the reason behind the Government wanting to stop the operation of a payment system. However, have they considered the reverse? Are there provisions in the Bill to keep a payment system open when the company wants to shut it down, but the Government want to keep it going so that there is no failure in the system?

Ian Pearson: None of the enforcement powers proposed in the Bill should be taken lightly. I am happy to confirm that we anticipate their being used only in unusual and exceptional circumstances. The power to make a closure order is necessary as the ultimate sanction in cases of a compliance failure that is considered so serious that the Bank of England believes that the continued operation of a recognised inter-bank payment system could destabilise the UK financial system. It is entirely appropriate for the Bank to have such a power in such circumstances, because it will have to act decisively to address such threats by closing down all or part of a recognised inter-bank payment system.
I say again that that could happen to a payment system on the wholesale or retail end of spectrum, but it would have to be of systemic or system-wide importance. The combination of this power and the others that we have discussed on publication compliance failures and financial penalties provides a suite of tools that may be applied, depending on the severity of the compliance failure.
The hon. Member for Wellingborough raised an interesting point. It is not likely that the circumstance he described could or would ever arise, but I have in the back of my mind that there are already powers that could deal with it. If I find that that is not the case, I will think about whether anything needs to be done in that area. However, I am pretty confident that the matter is covered.

Peter Bone: The Minister is being very generous. During pre-legislative scrutiny, the British Bankers Association said if a bank failed, an issue in retail banking would be to keep payments flowing. Thinking about that in relation to the present example, if the owners of a payment system fail for another reason, it may be desirable to keep the payment system running so that there is not a systemic failure.

Ian Pearson: I understand the hon. Gentlemans point. It is probably covered in the clauses concerning system rules and directorates. If a problem remains, I will reflect on whether improvements need to be made at a later stage.

Question put and agreed to.

Clause 185, as amended, ordered to stand part of the Bill.

Clause 186

Management disqualification

Question proposed, That the clause stand part of the Bill.

David Gauke: I shall make just two points about the clause. First, I am sure the Minister would not want us to have a system in place that discourages good people from being involved in the operation of payment systems, so if he can provide some comfort to the Committee about how the powers under clause 186 will operate, it will be helpful. The powers are quite widely drawn and there is concern that that might discourage people from operating in that areaalthough I also note that similar provisions exist with regard to approved persons within FSA-regulated entities as a whole.
Secondly, I said to the Minister this morning that clause 177 is broadly defined and that the Bank of England will be able to give a direction to the operator of a recognised inter-bank payment system to take specified action and that that power could be used against particular individuals. The Minister referred me to clause 186 and was right to do so, but considering clause 177 in isolation, it seems to be broad enough to take into account various elements of clause 186. Therefore, in the context of clause 186, I ask again if the Minister can confirm that clause 177 will not be used as a mechanism for prohibiting individuals and that, as far as the treatment of individuals is concerned, that will be dealt with under clause 186. If he cannot confirm that, perhaps he will elaborate on why that is the case.

Colin Breed: In the past, we have talked about the operator being an entity and said that therefore the entity can or cannot carry on. This clause specifically refers to a person. Unless the Bank of England has authorised or qualified that person, it is difficult to see how it can disqualify that person. Is it intended that people who are in some sort of management position of responsibility in these payment systems will have to be authorised by the Bank and then that authorisation could be withdrawn, or will the Bank of England effectively be able to override any service agreement that an individual bank has entered into in respect of its personnel? In other words, can it in some way insist that the bank disqualifies the person who is operating in that way? That would be a massive change in the way in which any regulator operates in relation to the institutions under its powers. At the moment, yes, a regulator can regulate a company, a bank, a business and everything else, but unless it is going to specifically authorise individual people and they are going to have to maintain that sort of qualification or authorisation, it is difficult to see how the Bank of England can do that.

David Gauke: The hon. Gentleman will be aware that in entities regulated by the Financial Services Authority, there is an approved persons regime. Before one can perform a controlled function with an FSA-regulated entity, it is necessary to have obtained approval from the FSA, and the FSA is entitled to withdraw that approval and so on. In that sense, there is a parallel. Does he agree that the distinction under clause 186 is that there is not an approval regime in the first place? Perhaps there is a point to be made about notification and the Bank of England being aware of who is employed. That matter does not appear to have been specifically addressed.

Colin Breed: That is the specific point I am making. If we are going to get down to the situation of people being authorised to undertake management functions in this way and therefore carrying some sort of approval by the Bank of England, that is fine, because that approval can be removed. The fact that approval has been removed will mean that they cannot continue to operate in the management role and so on. What is not clear is to what extent the Bank of England is now involving itself in the approval of management in those instances.

Peter Viggers: My point is rather similar. I derive my text from the proverb, You dont shoot the pianist, you shoot the person who asked him to play. Clause 186 says:
The Bank of England may by order prohibit a specified person from being an operator.
It goes on to say:
The Bank may by order prohibit a specified person from holding an office.
What it does not say is that the Bank may by order prohibit a bank from appointing a certain person. I wonder whether there is a provision in the Bill that enables the Bank of England to move against banks and not just individuals who are operators or who are holding an office or position?

Ian Pearson: Again, I would like to make it clear that we are talking about exceptional circumstances. Provisions in the Bill allow action to be taken against the bank as an entity. It is right to ensure that the inter-bank systems are robust, that there is no risk to those recognised systems that are of systemic and system-wide significance, and that they are being operated by responsible people. We have no reason to doubt that that is the case. It is right to take powers in legislation to disqualify a person from being an operator of a recognised inter-bank payment system, or from holding a position of management responsibility within such a system depending on circumstances, to make it clear that the disqualification could be
for a specified period, until further notice, or permanently,
and to make it a criminal offence to breach such a prohibition.
The clause is necessary to prevent a person from being an operator of a recognised inter-bank payment system if there is a potential threat to the stability of the financial system or to business interests in the UK. I am sure that the Committee will support that overall intention.
This power is intended to capture a situation in which the Bank of England feels strongly that a person who has been involved in the operation of a payment system that has been ordered to close should not be in a similar position in an alternative payment system. It also covers cases in which the Bank of England may be aware that a particular person is unsuitable to run a payment system because of inappropriate conduct elsewhere. I stress that there are also checks on the Banks power, including a requirement to give a warning, unless the Banks emergency power under clause 187(3) is used. There is a right of appeal to the independent financial services and markets tribunal.
The power of direction under clause 177 will not be used by the Bank of England to order an operator to remove or sack a person from its operation. I am happy to give the assurances that the hon. Member for South-West Hertfordshire seeks. This is not within the scope of the power, but I can confirm that clause 186 deals with the disqualification of specific persons from holding office. Obviously, the meaning of a person relates to the Interpretation Act 1978, which refers to natural and legal persons, so it can include banks and other corporate bodies.

John Pugh: I am not sure whether the Minister is making it perfectly clear to all of us, but could he tell me whether there is a presumption in the clause that anybody who holds a senior management position in an inter-bank payment system is necessarily in danger of being referred to as an operator, or is in the class of people who may be operators? Are there some exclusions?

Ian Pearson: What we are trying to do in clause 186 is to be clear that we are talking about a person who is an operator of a recognised inter-bank payment system. If this power were ever to be usedI would expect its use to be extremely rareit would be clearly targeted at individuals where the Bank felt very strongly that that person was not an appropriate person to be running a payment system, because of the reasons that I have cited elsewhere.

Colin Breed: We are edging our way there. Can the Minister envisage a circumstance, therefore, wherein such a person would not necessarily have already been dismissed or taken out by the operatorthe companybefore the Bank of England became involved?

Ian Pearson: As I said, I imagine that this power, if it was going to be exercised, would be exercised extremely rarely, because I would have thought that in normal circumstances the operator would have already taken that decision. So I think that it is a power that would be used only very rarely, because, as I have said, we would expect the operator to have taken action previously.

Question put and agreed to.

Clause 186 ordered to stand part of the Bill.

Clause 187

Warning

Question proposed, That the clause stand part of the Bill.

David Gauke: The clause relates to the warning procedure that will exist before a sanction is made under clauses 183 to 186. We welcome subsections (1) and (2). Subsection (3) provides an exception from the warning procedure, where it says:
if satisfied that it is necessary the Bank may without notice
(a) give a closure order under section 185, or
(b) make an order under section 186.
The wording is very vague:
if satisfied that it is necessary.
Perhaps this is one of those circumstances where I would be tempted to insert a reasonably somewhere along the line and the Minister would have argued against that.
The explanatory notes provide a little more detail. They say:
Such situations may arise if, for instance, delaying the cessation of the operation of the payment system...were to pose an imminent threat to the stability of the UK financial system.
Clearly that is a fairly high benchmark but it is not in the Bill, which is probably regrettable. However, may I encourage the Minister to be as emphatic as possible that the exception from the warning mechanism contained in subsection (3) will only be used in the most exceptional circumstances? I do not know whether the wording
imminent threat to the stability of the UK financial system
is merely illustrative or whether that is, in fact, the test that should apply. However, I think that there is some argument for considering whether subsection (3) should be amended to toughen it up.

John Pugh: May I ask about subsection (1)(c) and the words consider any representations made? I assume that there is a narrow reading and a broad reading of those words. Clearly, we are judging people against a code of conduct and the code of conduct can obviously be broken to a major or minor degree, and when it is broken people can simply judge whether there are extenuating circumstances. However, the words any representations seem to go a bit further than that. Again, I am inspired by the hon. Member for Wellingborough and his comment that a representation that might be relevant is that it is an inappropriate thing to do given the state of commercial markets, and so on. I had a very satisfying answer from the Minister about appeals, but the other issue is discretion and how it is used, and I want to know whether the Bank of England, in receiving representations, has to concentrate simply on the narrow business of whether the code of conduct has been breached and the operator is bang to rights on a very narrow reading of it, or whether the Bank can receive from the payments agency broader representations, such that it may be inappropriate, given the state of the market, to act at that particular moment.

Ian Pearson: Two points of substance have been made about the clause, which covers warnings in relation to the previous four clauses, which have all been about sanctions. The hon. Member for Southport made a specific point about considering representations, and the clause potentially covers all four sets of circumstances that we have discussed: publication, penalty, closure and management disqualification. The likely representations will differ, depending on the category to which they are applied. Representations could be made, for instance, by an individual, if they were to do with a management disqualification, or they could be made by a company. Representations can be made in confidence to the Bank, and it will be the Banks responsibility to consider all the representations made to it.
The hon. Member for South-West Hertfordshire

David Gauke: I am grateful to the Minister for giving way. My point was about the circumstances in which no warning was necessary, and the fact that the explanatory notes illustrate that situation.

Ian Pearson: I thank the hon. Gentleman. That was the second key point of substance to be raised, and I am happy to confirm our intention that a high benchmark be set. We are talking about situations in which a compliance failure would threaten the stability of the financial situationthe threat being so immediate that closure or disqualification should be imposed without delay. In normal circumstances, subsections (1) and (2) would be the relevant processes, and we would expect the warning process and the 21-day period to be used.

Peter Bone: Will the Minister give a practical example of when the provision would come into practice, and a practical example of the failure that would cause immediate action?

Ian Pearson: No particular practical example comes to mind, but the legal counsel who draft the measures like to consider all potential eventualities, and as I think I explained earlier, we are talking in all these cases about unusual or exceptional circumstances. However, it is right that all theoretical possibilities be considered, because it would not be appropriate for us to come back to the House to pass emergency legislation owing to something that, at this stage, had not been thought of and had therefore not been included. The measure is a backstop, but it is completely exceptional, and in that spirit, I hope that the Committee will accept that the clause should stand part.

Question put and agreed to.

Clause 187 ordered to stand part of the Bill.

Clause 188

Appeal

Question proposed, That the clause stand part of the Bill.

David Gauke: The clause contains an appeals mechanism, which is welcome. It makes use of the financial services and markets tribunal, which generally applies for FSA-authorised entities seeking to make an appeal. The provision shoehorns the payment systems legislation into this, so will the Minister assure the Committee that he is satisfied that the tribunal will have the necessary expertise in this specialised area? It deals generally with FSA-regulated entities rather than Bank of England-supervised entities, so will he assure the House on that point?

Ian Pearson: Yes, I believe that I can. Thought was clearly given when coming up with an appropriate body to consider appeals, and we believe that the financial services and markets tribunal will have the experience to consider the sort of decisions that may be referred to it. I have confidence in the tribunal, and believe that it is appropriate for the Bill to have an appeals procedure that refers to it.

Question put and agreed to.

Clause 188 ordered to stand part of the Bill.

Clause 189

Fees

Question proposed, That the clause stand part of the Bill.

David Gauke: Given that the Bank of England may require operators of inter-bank payment systems to pay fees, is it the intention that supervision of the payment systems will be essentially self-financing? Will the fees more or less equate with the costs incurred by the Bank, and will the Minister state the Banks likely costs of supervising and overseeing the systems, notwithstanding any fees that it may levy?

Ian Pearson: The clause, as the hon. Gentleman rightly says, enables the Bank to require the operators of recognised inter-bank payment systems to charge fees. The Bank does not currently intend to charge fees for its routine oversight of payment systems under this part of the Bill, and instead will meet its costs from its overall budget for financial stability policy functions, as is the case for its non-statutory oversight. However, the clause ensures that the Bank could continue to resource its oversight activity if the overall funding model changed.
In addition, if the Bank incurred exceptional expenses on its oversight activitiesfor example, due to the engagement of an expert to carry out an inspection under clause 179it would aim to recover those costs from the system concerned. The scale of fees would be set by the Treasury in regulations to ensure that they are proportionate. The provisions are sensible and straightforward.

Question put and agreed to.

Clause 189 ordered to stand part of the Bill.

Clause 190

Information

Ian Pearson: I beg to move amendment No. 20, in clause 190, page 94, line 7, at end insert
(4A) Subsection (4)
(a) overrides a contractual or other requirement to keep information in confidence, and
(b) is without prejudice to any other power to disclose information..
The clause enables the authorities involved in the regulation of payment systems to obtain and share information effectively. Subsection (4) allows the Bank to disclose information obtained under the clause to the Treasury and the FSA, and their international counterpartsthe European Central Bank and the Bank for International Settlements. It also gives the Bank the right to publish information obtained under powers conferred by the clause.
The amendment inserts an additional provision to ensure that the Bank may share information obtained under the clause with those authorities, notwithstanding any contractual or other confidentiality obligations in place, and without prejudice to other disclosure powers. The Committee will be aware that the gathering and sharing of information between domestic authorities and their colleagues in overseas authorities plays an important role, and will play an increasingly important role in informing and co-ordinating international regulatory activity, both to pre-empt and to address problems in financial markets. Similarly, the sharing of information plays a fundamental role in the framework governing the formal oversight of payment systems.
Therefore, it is vital that the Bank of England should be able to share information obtained under this section, notwithstanding any contractual or other confidentiality requirements, in the interests of financial stability, among other things. Accordingly, the amendment is appropriate in order to provide a statutory gateway for the Bank of England to share information.
It is appropriate to note that similar gateways are available to other public authoritiesfor example, the FSA and the Competition Commissionwhich may, in some circumstances, disclose confidential information without seeking the consent of the person from whom the information was obtained.
It is important to note that the provision means that the common law of confidentiality can be overridden. However, the power will, of course, be exercised by the Bank of England in a way that is compatible with the safeguards set out in the Data Protection Act 1998 and the Human Rights Act 1998. The amendment is equivalent to the provision in clause 224(3), which relates to information that is relevant to the financial stability of an individual financial institution, or one or more aspects of the individual systems of the UK, which may be shared with the FSA or the Treasury. I commend the amendment to the Committee.

Colin Breed: Will the Minister clarify two brief points? The use of the word share seems to indicate that information will be provided on a reciprocal basis. Conversely, can the Minister confirm that should it not be reciprocalin other words, if the other countrys FSA, Treasury or similar organisation were not willing to provide reciprocal information to usfrankly, we would not provide information to them? Sharing means genuinely sharing things, not just our side disclosing to someone else.
Secondly, can the Minister confirm whether disclosure would include the personal details of individual organisations and persons in respect of payments that may or may not have been made to them through the system on which information is being shared?

Peter Bone: As regards the Government amendment on overriding confidentiality, I would like to reinforce the point that the hon. Member for South-East Cornwall made. I do not think that information that is being shared under subsection (4)(c) with an overseas authority similar to the Bank of England, the FSA or the Treasury should be shared unless there is a similar agreement from that organisation. I would like the Minister to give an assurance that information will be shared only if we have that co-operation from overseas.

Ian Pearson: I am happy to explain that, in normal circumstances, we expect there to be reciprocal arrangements with the international partners with which we co-operate. As I mentioned when introducing the amendment, we are talking about the European Central Bank and the Bank for International Settlements. We think that it is right to have such arrangements with them. If we think that it is appropriate in the interests of financial stability to share information, even if the arrangements are not reciprocal, we should do so, because we all share an interest in financial stability. However, I have absolutely no reason to believe that the European Central Bank or the Bank for International Settlements would not want to share with us information that they believed was important to global financial stability.

Peter Bone: We accept the point about the European Central Bank and the Bank for International Settlements, but paragraph (c) refers to other Governments and organisations in other countries. It is a blanket thing. Are the Government saying that we will share this information regardless, or will we require the other country to participate as well and share information with us?

Ian Pearson: It is important to be clear that we are talking about a narrow and exceptional set of circumstances. If the Bank of England has information that it believes is of importance to the stability of the financial system, the right and responsible thing to do is to share that information. Likewise, if an authority from another country was in a similar position, we would expect it to want to share that information as a matter of course.
On the question of sharing personal details, I want to repeat that the Bank of England is subject to the Data Protection Act and must abide by data sharing principles which confer particular protections with regard to personal information. It must also act in accordance with its obligations under the Human Rights Act, particularly article 8, and have regard to the right of protection of private and family life. There are a lot of safeguards there and in the very unlikely eventuality that information which threatens the financial stability of the system comes to the attention of the Bank, the responsible thing to do is to share that with our international partners.

Amendment agreed to.

Clause 190, as amended, ordered to stand part of the Bill.

Clause 191

Pretending to be recognised

Question proposed, That the clause stand part of the Bill.

David Gauke: The clause states that it is an offence to pretend to be recognised under these provisions. If I remember correctly, the Financial Services and Markets Act 2000 has similar provisions. I do not know whether the Minister is in a position to tell us how frequently prosecutions have been brought under those provisions. I know that there have been some and in those circumstances they tend to be very much at the retail end. Given that participants in inter-bank payment systems will be banks and sophisticated institutions, does the Minister think it necessary to do this and to have this provision?
Secondly, will a central list of recognised inter-bank payment systems be available on the Bank of England website, in the way that there is a list of authorised entities on the FSA website? There is a legitimate point about wanting to make it clear which entities are recognised and where participants could get some sort of regulatory protection. Does the Minister intend to have such a list? In those circumstances it would not really be necessary to have this provision. I do not see that it does any great harm, but I am not sure that it adds to the efficacy of the provisions we are debating today.

Ian Pearson: This is yet another backstop. I perfectly accept the logic of the hon. Gentlemans argument. It is not the policy intention that any value should be attached to a payment system being recognised as such. However, simply to deter operators of payment systems from trying to exploit the new framework in such a way it is necessary to impose a criminal offence on anyone who wilfully misrepresents a payment system as being recognised when it is not. It is highly unlikely that someone would want to do that, but I am advised that it is helpful to have a deterrent there. That is what the clause does.

Question put and agreed to.

Clause 191 ordered to stand part of the Bill.

Clause 192 ordered to stand part of the Bill.

Clause 193

Overview

Question proposed, That the clause stand part of the Bill.

Angela Eagle: I wish to spend a little time setting out the broad structure and intent of part 6 of the Bill, and then I will not make a habit of leaping up to speak on clause stand part debates unless I have to.
Clause 193 provides an overview of part 6, which repeals and replaces certain provisions regarding the commercial issuance of banknotes in Scotland and Northern Ireland. Before we discuss the details of clauses in part 6, it might help the Committee if I set out the background. The issuance of national banknotes is usually a function undertaken by the central bank, which in the UK is the Bank of England. With the exception of Hong Kong, the UK is highly unusual in allowing a number of commercial banks to issue their own banknotes. The right to issue is set out in the Bank Notes (Scotland) Act 1845, the Bankers (Ireland) Act 1845 and the Bankers (Northern Ireland) Act 1928for ease I shall refer to them in future discussions on part 6 as the current legislation. Although 1845 might not seem all that current, we are in the process of updating it in part 6 of the Bill.
The provisions in part 6 update, modernise and strengthen the current regime for note issue, which dates back, as I just said, more than 160 years. Clearly, the world today is a very different place from when the legislation was first enacted, so I should like to take the opportunity to discuss some of the history of banknote issuance in the UK, to ensure that our future debates are informed of the context.
The Bank Charter Act 1844 prohibited any new banks in England and Wales from issuing banknotes and barred existing note-issuing banks from expanding their issue. The 1845 legislation in Scotland and Ireland made similar provisions in respect of banks in those nations. At the time, 21 banks applied to become certified to continue issuing banknotes in Scotland and Northern Ireland. That number has decreased over time through mergers, insolvency or by banks choosing to stop issuing, so a total of seven issuing banks remain. Those seven banks are currently authorised to issue banknotes and will continue to be authorised to do so with the commencement of part 6, provided that they abide by the requirements placed on them under the provisions of this part.

Stewart Hosie: It was my understanding that banks would continue to be able to issue, but that there would be a higher bar should a new bank emerge and say, I want to issue a banknote, which is highly unlikely. However, a question emerges from that: if the Lloyds TSB-HBOS merger goes ahead, would the Bank of Scotland part of the new organisation continue to be an authorised bank under the new legislation, and therefore entitled to continue to issue notes?

Angela Eagle: The answer is that the issuing rights are vested in the underlying corporate entity. What happens to the issuing rights depends on the individual circumstances of a takeover. I can assure the hon. Gentleman that in the specific case of Lloyds TSB and HBOS, the Bank of Scotland, which is a subsidiary of the latter, is the issuing bank, and the issuing rights attach to that corporate entity alone. The change in ownershipin this instance, of Bank of Scotlandwould not mean that a bank would be forced to stop issuing banknotes, so it continues under the current proposals to be eligible to issue banknotes. I hope that that reassures him.
I was discussing the history of the matterit might seem odd to do so, but it creates a context for subsequent debate. To reassure the hon. Gentleman even more, the Government are committed to maintaining the long-standing tradition of commercial banknote issuance in Scotland and Northern Ireland and we are not seeking to discourage commercial issuers of banknotes from continuing the practice. However, our priority is to ensure that holders of Scottish and Northern Ireland banknotes have a level of protection similar to the holders of Bank of England notes, so that in the event that an issuing bank fails, they can expect to obtain full face value for their notes. This is an important part of the Governments commitment to protect consumers. There is more detail in part 6 on how that is to be achieved.
With that small history lesson and my reassurance to the hon. Gentleman, I commend the clause to the Committee.

David Gauke: I thank the Minister for her informative introduction to part 6. There are various issues that we want to address, not least the issues of backing assets and the balance between Bank of England notes and other assets. I will address those when we come to the appropriate clauses.
I should be grateful at this stage if the Minister would list the commercial banks that are currently entitled to issue notes. She stated that the Government are keen to continue to allow commercial banks to issue notes. We do not disagree with that. It is an historical curiosity, but there is nothing wrong with historical curiosities. The Minister will not be surprised to hear a Conservative say that. Will she elaborate on why the Government are keen to continue to allow that to happen?
Finally, I thank the Minister for publishing the draft regulations that relate to this matter. They will help our debate as we proceed through the coming clauses.

Peter Bone: I was not expecting to speak on this matter. However, as I understand it, the Minister said that if I had a Scottish note issued by the Bank of Scotland and the Bank of Scotland failed, I would not get my money back. I did not think that that was the position.

Angela Eagle: It is not.

Peter Bone: The Minister says that I got that totally wrong. It would not be the first time.
Was this legislation brought about because of the current crisis, or was it planned before that? If something has worked for close on 200 years, it probably works pretty well and there is no reason to change it for the sake of changing it. Is there any difference between legislation in Northern Ireland and Scotland? How many banks in Northern Ireland issue notes?

Stewart Hosie: I thank the Minister for her helpful reassurance on the Bank of Scotland notes. The bulk of my concerns come under the banking assets debate in clause 203. I put it on the record at this point that after numerous consultations over the past 15 months or so, we finally have something that almost works and that the industry by and large is satisfied with.

Angela Eagle: The hon. Member for South-West Hertfordshire asked me to list the seven remaining banks that have rights of issuance. In Scotland, they are the Bank of Scotland, which as has been mentioned is a subsidiary of HBOS; the Clydesdale; and the Royal Bank of Scotland. In Northern Ireland, they are the Bank of Ireland, First Trust Bank, the Northern bank and the Ulster bank.
The hon. Member for Wellingborough asked whether the legislation was brought about because of the financial crisis that we are living through. It was not. As the hon. Member for Dundee, East hinted, this is the end of a process that began in 2005 with consultations that have been ongoing since then between the Bank of England, the Treasury, the authorities and the banks that issue to try to bring more reassurance in the backing assets issue.
The hon. Member for Wellingborough asked whether current banknotes were in danger, or were not worth as much as they are meant to represent. Clearly that is not the case, but some aspects of how the notes are backed are old-fashionedthey date to 1845and do not fit in with current approaches, so they need tightening up. That is what part 6 will do. There is nothing wrong with the current legislation that cannot be put right by modernising and refocusing bits of it, and part 6 seeks to do so. I hope that, with those reassurances, the Committee will be able to agree that clause 193 should stand part of the Bill.

Question put and agreed to.

Clause 193 ordered to stand part of the Bill.

Clause 194 ordered to stand part of the Bill.

Clause 195

Issue

Question proposed, That the clause stand part of the Bill.

David Gauke: I have a brief query for the Minister. The clause relates to the definition of issue. The explanatory notes state:
The definition ensures that a banknote is regarded as issued once it enters circulation, even if it enters circulation in error or as a result of theft.
I assume that the reason is that a note issued in that way still needs to be treated as issued to protect the position of noteholders. There could be a mismatch for the protection of noteholders. Was equivalent protection provided under the old regime?

Angela Eagle: The hon. Gentleman has alighted on one of the points that we were keen to modernise in the legislation around commercial issuance of the banknotes, to ensure that there was no ambiguity about which existing notes could be regarded as issued for the purpose of backing assets. He has discovered immediately one of the areas of ambiguity that we seek to put right, and he is right to point out to the Committee why it is important to do so. If a note has been issued accidentally or because of theft, it is still a promise to the individuals using it, and it needs to be backed by the appropriate assets.
The hon. Gentleman is quite right. He has alighted on an ambiguity, and he has pointed out why it needs to be made unambiguous. That is what the clause will do.

Question put and agreed to.

Clause 195 ordered to stand part of the Bill.

Clause 196

Authorised bank

Question proposed, That the clause stand part of the Bill.

David Gauke: I thank the Minister for listing the various banks that supply us. It is one of those circumstances in which Wikipedia proved correct before the Committee. I thank her for providing clarification on what happens in mergers, which is topical and important. I have another question to ask, partly to provoke the hon. Member for Dundee, East. Were a bank falling within the definition of an authorised bank to relocate from Scotland or Northern Ireland to elsewhere in the United Kingdom, would it still be able to benefit from the provisions, or would it be disqualified from issuing banknotes?

Angela Eagle: The hon. Gentleman is right. Clause 196 defines authorised bank as it is used throughout part 6. Since the current legislation was enacted, as I hinted earlier, there have been restrictions in place governing note issuance by these banks. As I said earlier, the Bill modernises and strengthens the framework for note issuance, with a view to enhancing noteholder protection.
The hon. Gentleman asked specifically whether a bank relocating elsewhere in the United Kingdom would still be able to issue notes. If it moved elsewhere and relocated in the UK, it would still be able to benefit. It would not lose its authorisation on the grounds of relocation elsewhere in the UK. I hope that that answers the hon. Gentlemans question about the definition of authorised bank.

Question put and agreed to.

Clause 196 ordered to stand part of the Bill.

Clauses 197and 198 ordered to stand part of the Bill.

Clause 199

Saving for existing issuers

Question proposed, That the clause stand part of the Bill.

David Gauke: Essentially, the position created by these provisions is that those banks that can currently issue banknotes may continue to do so, but new ones cannot. Why not?

Peter Viggers: What is the Governments assessment of the value to each of the issuing banks of their having the authority to issue banknotes? Assessments have been made and have been disputed by the Government, but what is their assessment of the global value of all those banks that have the right to issue banknotes, broken down into the separate constituent parts of the individual bank?

Angela Eagle: The hon. Member for South-West Hertfordshire asked, Why no new issuers? As I said in my prefacing remarks about part 6, banknote issuance is usually a function reserved for central banks. The UK is almost, but not quite, uniqueif we count Hong Kongin allowing a number of commercial banks to issue their own banknotes. Under the existing legislation, only the banks that had issuing rights at the time of the enactment of the legislation in 1845 that sought the necessary certifications to continue issuing in accordance with those enactments may issue banknotesand only in Scotland and Northern Ireland. As I said earlier, only seven of the original 21 entities remain after 160 years of commercial operation. That is the attrition rate.
The Government support the continuation of this tradition of commercial issuance, simply because it is a

David Gauke: Tradition.

Angela Eagle: A tradition that does no particular harm and is particularly welcome in Scotland. A different debate goes on in Northern Ireland about the practice. The Government do not wish to see that tradition draw to a close by enacting legislation that would ban it; it is appreciated particularly in Scotland. We are not seeking to discourage note-issuing commercial banks from continuing to issue their own banknotes, but it is a privilege and is not a right that should be open to all. It is not a commodity that should be bought and sold. It is an historical quirk that we can support, but for obvious reasons, we would not seek to revive or expand it. The hon. Member for Dundee, East is getting to his feet.

Stewart Hosie: It is certainly historical, but I think that it is more than a quirk. Perhaps I can help the hon. Member for Gosport with his question. Although the value may be modest in cash terms, the promotional value is enormous, not only for Scotland, but particularly for the banking sector in Scotland. It is probably an incalculable amount of money. This is rather more than an historical quirk.

Angela Eagle: Well, it is an historical quirk in that it has survived through the ages and not been centralised as has happened in every other country except Hong Kong. There are costs for banks that issue their own notesnot least the costs of printing, safeguarding, designing and ensuring that backing assets are kept to back up the cost of note issuance. I assure the Committee that the Government do not seek to extend the right to issue to any new institutions. The original issuing legislation was careful to close down that eventualityit applied only to the commercial banks that existed at the time and since then, their number has gradually declined.

Peter Bone: In her earlier remarks, the Minister said that the decline was partly due to mergers and that is why those involved dropped out. There is a massive merger at the moment regarding one of those banks. We must follow the consequences of what the Minister was saying, namely that we do not want to expand the right to issue notes to different banks. However, lawyers will get involved with the bank that does issue them. If we follow the logic of the argument, would that not be a reason for stopping it at that stage?

Angela Eagle: It depends on how the merger is done. As I said earlier, issuing rights are vested in the underlying corporate entity. If that corporate entity were to disappear in a merger with another institution, its issuing rights would go. In the case of Lloyds TSB-HBOS, the Bank of Scotlanda subsidiary of HBOSis the issuing bank. A change of ownership at Bank of Scotland, as long as it remains an entity, will not affect its issuing rights. If Lloyds TSB was going to take over and extinguish the Bank of Scotland, I am sure that the hon. Member for Dundee, East would have a few words to say. If the Bank of Scotland ceased to exist, that would extinguish its issuing rights. However, the fact that it remains a subsidiary means that that is not an issue in this case.
The hon. Member for Gosport asked what the value of the authorisation to issue was. This is a commercial matter. During three rounds of consultation about the changes that are now in part 6, no bank responded that the right to issue caused distortion or unfair competitive advantage. That issue was not raised. I do not have the figures that the hon. Gentleman requested to handas I said, this is a commercial matter. However, I think that £3.5 billion of Scottish banknotes and £1.6 billion of Northern Irish banknotes are in circulation. To the value of £40 billion of Bank of England notes are in circulation. That will at least give the hon. Gentleman a view about the larger part of the circulating currency that we are talking about.
I hope that with those answers, the Committee will support clause 199.

Question put and agreed to.

Clause 199 ordered to stand part of the Bill.

Clause 200 ordered to stand part of the Bill.

Clause 201

Banknote regulations

Question proposed, That the clause stand part of the Bill.

David Gauke: May I make a point that could be made in relation to either clause 201 or clause 202? Clause 201 states that the banknote regulations must be made through the affirmative procedure, which we welcome, but clause 202 states that the Bank of England may make banknote rules. In those circumstances, there will be no direct parliamentary scrutiny, and I query whether the affirmative resolution procedure will prove to be as useful as it at first appears. The Minister has provided us with an early draft of the banknote regulations, but am I right to think that Parliament might not have an opportunity to scrutinise those rules?

Stewart Hosie: I am confident that the regulations and the rules will cover matters such as standard size, security features and the weight of notes. I know that the banks have been lobbying hard regarding concerns that they had in the early stages of consultation. Will the Minister confirmwe will cheer if she doesthat the Government do not intend to have a single note of each denomination? Will they continue to allow limited edition notes, which are valuable for many reasons, to be issued, as long as they meet all the rules and regulations that will cover all notes?

Angela Eagle: The framework governing the issue of Scottish and Northern Irish banknotes is set out in the primary legislation. The detail of the provisions in part 6 are, as the hon. Member for South-West Hertfordshire said, to be captured in regulations that will be subject to the affirmative resolution procedure. A draft set of the regulations has been provided to the Committee to assist our debates. Further, there is provision for making banknote regulations that contain details about the treatment, holding and issuing of banknotes by authorised banks. As hon. Members will see when we debate clause 203, the regulations will require authorised banks to have backing assets. They will also contain detailed provisions on important issues such as how backing assets may be held, how they may be treated in an insolvency, and how reports about them should be made by authorised banks.
I welcome hon. Members comments on the draft regulations, but I ask them to bear in mind that they are in draft form. I sent them to the Committee merely to illuminate debate on the relevant clauses. They are not totally baked and out of the oven, but are to some extent a work in progress; some of them need further work before they can be consulted on.
The draft regulations contain detailed provisions relating to, among other things, the conditions attached to approved or designated locations or agents, the proportion of backing assets to be held in a particular form or location and the scope of the banknote rules. Those rules are intendedthis brings us to a question that the hon. Member for South-West Hertfordshire askedto be even more detailed in relation to how the regulations work. In essence, the banknote rules are even more detailed and rely and hang on the statutory instrumentsthe secondary legislationthat we will pass, which is why I do not agree with the hon. Gentlemans worry that somehow the banknote rules will avoid parliamentary scrutiny. The regulations will be passed by this House in affirmative form and voted on. The banknote rules will then iterate even more detail about how the Bank of England will fulfil its obligations in that respect.
The regime needs flexibility to adapt to changes and developments in banknote issuance that might occur in future. The authorities might also have to act quickly by making regulations or rules to ensure that the integrity of the currency is maintained at all times. The idea of the balance between secondary legislation and the banknote rules will again focus first and foremost on protecting noteholders in order to ensure that confidence is not lost in any of the currency. Banknote rules mainly make provision as specified in the banknote regulations; they cannot do things that are not connected to the regulations that will be debated and voted on in this House.
In answer to the perfectly reasonable question about limited edition notes asked by the hon. Member for Dundee, East, I can confirm that it will still be possible to issue limited edition notes. With those reassurances, I hope that hon. Members will agree that clause 201 stand part of the Bill.

Question put and agreed to.

Clause 201 ordered to stand part of the Bill.

Clause 202 ordered to stand part of the Bill.

Clause 203

Backing assets

Angela Eagle: I beg to move amendment No. 21, in clause 203, page 98, line 7, leave out processes.

Jimmy Hood: With this it will be convenient to discuss Government amendments Nos. 22 to 27.

Angela Eagle: The amendments are a technical clarification of references to insolvency in clauses 203 and 206 of part 6. The need for the amendments was not appreciated until a comparatively late stage, and I regret the inconvenience to the Committee in having to table Government amendments. As I have said, the provisions of part 6 are primarily concerned with ensuring that noteholders of commercial issuing banks are protected in the event that the issuing bank gets into difficulties. Clause 203(5) specifies:
Banknote regulations may make provision about the treatment of backing assets in relation to insolvency processes.
Clause 206(1) states:
Banknote regulations may make provision in connection with the application to an authorised bank of ...the special resolution regime (under Parts 1 to 3), or...an insolvency process.
The insolvency process is defined in clause 203. It is the policy intention for the Bill to enable banknote regulations to make a provision in relation to the law of insolvency and the law of an insolvency processfor example, in relation to the treatment of backing assets. As hon. Members will be aware, that is necessary because not all insolvency processes start on insolvency.
The state of affairs where a bank can no longer afford to pay its debts is defined in section 123 of the Insolvency Act 1986. As currently drafted, the provisions only allow banknote regulations to make provisions in relation to insolvency processes, so the amendments are necessary to ensure that banknote regulations can make provision for insolvency or an insolvency process. Amendments Nos. 23 and 24 mean that insolvency can be taken to include a reference to insolvency process, which may include liquidation, administration, receivership and so on. The provisions are of integral importance to part 6 to ensure that provision can be made to ring-fence backing assets in order to back those notes in the event of insolvency or an insolvency process.

Amendment agreed to.

Amendments made:No. 22, in clause 203, page 98, line 8, leave out an insolvency process and insert insolvency.
No. 23, in clause 203, page 98, line 18, leave out insolvency process means and insert
a reference to insolvency includes a reference to.
No. 24, in clause 203, page 98, line 19, leave out paragraph (a) and insert(a) liquidation,.[Angela Eagle.]

Question proposed, That the clause, as amended, stand part of the Bill.

Stewart Hosie: The way in which the Bill treats Scottish and, indeed, Northern Irish banknotes constitutes a pragmatic approach. This may be the only time during this Parliament that I say these words, but I think that the Government have listened to the sector. I am pretty confident that by ensuring that banknotes can be backed by both interest-bearing and non-interest-bearing assets, we now have a platform that will secure the long-term future of the issuing of Scottish banknotes, while having the flexibility to ensure the integrity of the issue of all banknotes in the UK. In particular, the comments that the Minister made a short time ago about possibly having to act quickly in certain circumstances were absolutely right.
In a previous contribution, the Minister identified the fact that significant costs are associated with the printing, distribution and holding in security of Scottish notes. Those will need to be offset by the ability to earn interest on a reasonable proportion of the assets that are backing the notes in circulation. However, as drafted, the Bill remains silent on the precise mix of assets that the issuing banks will be allowed to hold. Striking the right balance between interest-bearing assets and non-interest-bearing assets will be critical to ensuring the future of banknote issuance in Scotland, and its profitability or its being economic at all. If future regulations are too restrictive on the level of interest-bearing assets that can be held against the notes, it could fatally undermine the ability of the issuing banks to continue to produce and issue the notes. Will the Minister therefore provide the Committee with an assurance that any future regulations on that matter will be drafted so as to ensure that the activity of issuing Scottish notes remains economic?
I know that there is general discussion of a 60/40 asset split. That will be finalised at some point and I hope the Minister can confirm that today. Will she also provide assurances that any such split will remain broadly as it isat 60/40and that there is no intention, certainly by her or by the Government, to use the regulations to change the balance between interest-bearing and non-interest-bearing assets backing the notes?

David Gauke: Backing assets may be the key subject that we shall consider during the Bills proceedings. The current arrangement, as I understand it, is that a small leveldescribed as the fiduciary levelof notes issued by Scottish and Northern Irish banks is not covered by backing assets. When I say a small level, it appears to be very small; 0.125 per cent. of notes issued, according to the 2005 figures. That fiduciary level allows the banks to make a return on issuing notes in a process called seigniorageI hope I pronounced it correctly.
In 2005, the Government proposed removing the fiduciary level and requiring 100 per cent. backing. They said at the time that it was to ensure that there was protection for all noteholders and to provide a level playing field. That produced quite a response and, as the hon. Member for Dundee, East said, the Government have listened. In the July 2008 consultation document, the Treasury stated that some respondents felt that insufficient account had been taken of the costs associated with issuing banknotes and the social benefit supported by the income derived. [Interruption.] Yes, I should be grateful if the Minister could explain the meaning of social benefit supported by the income derived. Are we talking about particular charities that are supported by seigniorage? The proposal in the consultation document is implemented in the draft indicative regulations that the hon. Lady has circulated and which suggest the 60/40 split, whereby 60 per cent. of the value of banknotes is backed by Bank of England banknotes and the remainder is in a segregated interest-bearing account.
I understand how the proposal deals with the provision of support to noteholders and ensures protection for them. Subject to the speed at which some noteholders can obtain payment from the segregated accountan issue to which we shall return in a momentand a level playing field, does that give those note-issuing banks an advantage? Will there be a source of income that is not available to their competitors? I assume that the Governments intention is to provide sufficient incentive to make it worth while for the banks continuing to issue the notes, and that they do not want to stop that. Equally, however, they do not want to provide an additional source of income that would not otherwise be available. Is that the intention driving the Government?
Furthermore, although the Minister may correct me, I should have thought that the balance between interest-bearing assets and non-interest bearing assets would depend on what interest rates were at a particular time, and that there might be certain periods when 60/40 was adequate, but at other times the income for the banks would be insufficient or excessive, so we run into issues relating to a level playing field. Will the hon. Lady say whether such a concern is legitimate or, if it is not, can she explain why?

Angela Eagle: The provisions are intended to ensure that holders of Scottish and Northern Irish banknotes issued by authorised banks will be afforded a level of protection similar to that for holders of Bank of England banknotes. That is the first and foremost aim of part 6 of the Bill. The clause states:
Banknote regulations must require authorised banks to have backing assets
to make a reality of that protection. Backing assets are assets of the sort specified in banknote regulations. Regulation 3 of the draft indicative banknote regulations that I have circulated to the Committee sets out three types of backing asset: Bank of England banknotes, current coin of the UK and funds placed on deposit in sterling from the account held by the Bank of England.
The regulations then set out precisely what form the backing assets should take in relation to banknotes in circulation and notes that have not been issued, but are held otherwise than in designated locations, for example, in bank tills, in ATMs or in transit. It is not surprising that they were not mentioned in the 1845 legislation, but we thought it was time that we acknowledged their existence. Those notes are considered to have the potential to enter circulation, including in error or by theft, so it is necessary for them to be fully backed to protect holders of Scottish and Northern Ireland banknotes.
Of key importance is subsection (5), which provides that banknote regulations make provision for the treatment of backing assets in relation to insolvency processes. That is the ring fence we were talking about earlier. It means that should one of the issuing banks have such difficulties, there will be no ambiguity whatever about the fact that the backing assets are there to back the notes. That again features in part 6 of the Bill.
Part 3 of the draft indicative regulations, in particular regulations 11 and 12, makes it clear that, in the event of a banknote issuer becoming insolvent, noteholders can obtain full value for their notes from the backing assets. The ring fence will last for a protective period defined in regulation 13(2) as one year from the date on which the insolvency procedure commences. It can be extended by the Treasury in consultation with the Bank of England.

David Gauke: Perhaps the Minister can allay my fears. Is it possible that there will be one class of noteholders who will be able to get to the relevant bank and exchange for a Bank of England note quickly, which will cover the first 60 per cent., whereas the rest will be left waiting for up to a year for the segregated account to sort itself out?

Angela Eagle: I do not think that that will be the case. The banking assets are held at the Bank of England. In the event of an insolvency, the ring fence will keep those assets there so that they cannot be used in the other insolvency procedures. That is in order that any holder of an issued note from the appropriate bank can go to the Bank of England and exchange it for a Bank of England note of the same value. The year-long ring fence allows time for those notes to be properly exchanged.
Under the regulations, any backing assets that remain when the year is up can go back into the insolvency process. The ring fence is important because it guarantees the rights of those who would be left holding the issued notes. The aim of the regulations is to ensure that those who possess Scottish or Northern Irish banknotes have levels of protection that are as good as those for holders of Bank of England notes.
The regulations address deficiencies in the existing legislation, which does not explicitly set out the purpose of note-covering assets. There is currently no certainty that assets will be used in full or in part for the benefit of noteholders, should the issuing bank become insolvent. That worry must clearly be addressed and that is done in part 6.
Clause 203 and the draft regulations make specific provisions regarding the backing assets that each authorised bank must hold to give holders of Scottish and Northern Irish banknotes a similar level of protection to holders of Bank of England banknotes and to ensure that in the event of an issuing bank getting into difficulties, holders of its notes can expect to receive the value of their notes.
Hon. Members asked about the working of the regulations. The hon. Member for Dundee, East is right to point out that there was discussion in the consultation documents about the form in which the backing assets should be held at the Bank of England. He talks about a 60/40 split, which appears in regulation 5. The idea behind that is that there should be a revenue-neutral outcome in the seigneurage earned by the issuing banks and the Exchequer. The proposal was designed to maintain the status quo in the economics of commercial note issuance, while ensuring noteholder protection. That is the balance that the hon. Member for South-West Hertfordshire spoke about.
The Government have consistently stated that they are not seeking to discourage note-issuing commercial banks from continuing to issue their own banknotes. There are costs and benefits in issuing banknotes. The solutions, as set out in regulations on how the backing assets are held, are meant not to disturb those. Clearly, the hon. Member for Dundee, East is right that there is a certain kudos to having banknotes issued, and there may be advantages from that point of view, but there are also costs in terms of printing, protecting and having assets held to back them, and all the other associated issues.
The hon. Member for South-West Hertfordshire was talking about whether the interest rate was the issue, with respect to the 60/40 split, but it is more about the costs of printing notes and having security for them. All of those things have to be taken into account, but 60/40 seems to be widely accepted among the issuing banks as a fair, cost-neutral approach. As the figures are to be set out in secondary legislation they could be revisited if there were to be a sudden shift in costs that we cannot anticipate today.

Mark Todd: It just occurs to me that, as the hon. Member for South-West Hertfordshire said, there presumably must lie some competitive advantage in being granted the right to issue notes, which we are sanctioning a continuance of; otherwise, unless these brave corporations are all charities, they would have discontinued that activity. I wonder whether anyone has assessed that advantage and quantified it.

Angela Eagle: Interestingly, in responses to the consultationhere I will answer the question that the hon. Member for South-West Hertfordshire asked about the elaboration of social benefitsthe issuing banks made the point that because these commercial banks produce banknotes, the Bank of England can produce fewer, thereby saving money. That is the social

Stewart Hosie: Will the Minister give way?

Angela Eagle: Let me finish dealing with this point. They also then have to retain the security arrangements to ensure that their notes are safe. There is an opportunity cost to the Bank of England, and it has to do less of that work because the commercial banks are doing a bit of it.
I have not seen any work suggesting what the commercial advantages to producing banknotes are; I merely make the observation

Mark Todd: They must exist.

Angela Eagle: I am assuming that those issuing banks that have continued to issue notes since 1845 think that it is a good thing to do. We do not have a problem with it, as long as we can ensure that the notes are properly backed, so that they are not a weak link in terms of confidence in our currency in this country. Also, if one has to have backing assets, that means that that money cannot be used to invest in other areas or to get interest. Having to hold large sums in backing assets that are Bank of England notes does not exactly earn a great deal of interest, so there is an opportunity cost in other investments that could be made. The hon. Member for Dundee, East no doubt has some other examples.

Stewart Hosie: In terms of the social benefits, I am sure that the Minister knows and everybody in the Committee knowsthey have simply forgottenthat it is not just the banks that use Scottish notes, but all the financial institutions as well. The modest commercial advantage that they may have had helped to increase the number of free-to-use automatic teller machines, which were filled with notes from the Scottish banks. That kind of social benefit is included, and that came from the modest advantage that the Scottish banks got.

Angela Eagle: I was just going to come on to that argument, which featured in the consultation.

David Gauke: I am grateful to the Minister for giving way, and to the hon. Member for Dundee, East for stressing the modest benefits. If memory serves me, a few minutes ago he was talking about the incalculable benefits, but there we go.

Angela Eagle: I hope that with that long discussion of the costs and benefits of the measure, and given the information before the Committee, particularly regarding backing assets, how they will be held, and how the ring fence in the event of insolvency will work, hon. Members will support the clause.

Question put and agreed to.

Clause 203, as amended, ordered to stand part of the Bill.

Clause 204 ordered to stand part of the Bill.

Clause 205

Ceasing the business of issuing notes

Question proposed, That the clause stand part of the Bill.

David Gauke: The clause states:
If an authorised bank at any time after commencement stops issuing banknotes, it may not resume issuing banknotes in reliance on
these provisions. Can the Minister confirm that that would not apply if a bank stopped issuing banknotes owing to circumstances beyond its control, such as industrial action or damage to the printing works? That is not clear in the Bill.

Angela Eagle: I am happy to give the hon. Gentleman that assurance. The clause would apply if the decision was taken to stop issuing banknotes, not because of a sudden mechanical breakdown of the printing machinery. I hope that that reassures him.

Question put and agreed to.

Clause 205 ordered to stand part of the Bill.

Clause 206

Insolvency, &c.

Amendments made: No. 25, in clause 206, page 99, line 13, leave out an insolvency process and insert a provision about insolvency.
No. 26, in clause 206, page 99, line 27, leave out bank insolvency or insolvency and insert
insolvency (within the meaning of section 203(6)).
No. 27, in clause 206, page 99, line 34, leave out , to bank insolvency or to insolvency.[Angela Eagle.]

Clause 206, as amended, ordered to stand part of the Bill.

Clauses 207 to 212 ordered to stand part of the Bill.

Clause 213

Exemption

Question proposed, That the clause stand part of the Bill.

David Gauke: Clause 213 seems a strange place to state that the Bank of England is excluded from clause 207(1). I am surprised that that was not dealt with in clause 207. Is the Minister in a position to explain the statutory basis on which the Bank of England issues banknotes?

Angela Eagle: The Bank of England is the UKs central bank, so it is appropriate that it can issue banknotes throughout the UK, which is what clause 213 sets out. The right to issue notes in Scotland and Northern Ireland is a privilege and a long-standing tradition for those nations, but it does not preclude the Bank of England issuing notes. The legislation that authorises certain banks to issue banknotes is completely separate from that which gives the Bank of England the right to issue notes in the UK. Clearly, that is the legislative basis upon which the Bank of England operates. I do not have the exact title of the relevant Act in front of me, but I am happy to whisper it to the hon. Gentleman at a later stage in our proceedings if that will satisfy him.

Question put and agreed to.

Clause 213 ordered to stand part of the Bill.
Further consideration adjourned.[Mr. Blizzard.]

Adjourned accordingly at one minute to Seven oclock till Thursday 30 October at Nine oclock.